How is the cash envelope system working for you?

[5wolfcubs]

My dh sent me a text message this morning saying we should talk about using a cash envelope system. I'm familiar with them...even read Dave Ramsey's book years ago. BUT...

 

Do you do everything cash? Or just certain categories? Which ones, specifically?

 

What if you end up with extra? Do you have more next month? Or just get what you need to make up the difference?

 

Do you use cash for doctor's visits? What if you need a filling or blood test that costs more then your expected co-pay?

 

We don't have a local bank. We use USAA and can make a certain amount of free ATM withdrawls a month, max $200 at a time (I think...I don't even have a cash station card!). I can see this being a big deterrent.

 

What about other things like car repairs, yearly registration, and oil changes?

 

Is it really better to have all that cash waiting in the envelope versus making interest in the bank??

 

Anyway, my real question is...How is the cash envelope system working for you?

[LauraGB]

Do you do everything cash? Or just certain categories? Which ones, specifically? Yes, except for things like the phone bill or others that come directly out of the checking acct or need a check.

 

What if you end up with extra? Do you have more next month? Or just get what you need to make up the difference? Leave it collect in the envelope from month to month. This was really hard for us because it was so tempting, necessary sometimes, to take the overage and put it into another more empty envelope.

 

Do you use cash for doctor's visits? What if you need a filling or blood test that costs more then your expected co-pay? Yes, if you can. You would need to add an envelope for medical expenses. If you don't have it there, you should try to set up payment amts with the dr's ofc that you can actually afford to pull from the envelope each month.

 

 

What about other things like car repairs, yearly registration, and oil changes? Plan ahead for the registration and oil changes. Make an envelope and leave it sit and collect until you need to use it.

 

Is it really better to have all that cash waiting in the envelope versus making interest in the bank?? If it gets spent it wouldn't have had time to collect any interest anyway. Put your big amts that you won't touch in cds, maybe (we never had any extra when we did this, though;))

 

Anyway, my real question is...How is the cash envelope system working for you?

 

My answers are in bold above.

When we did it, it worked really well. It does take some serious discipline, though. I would say it took nearly a year to really get it down correctly for us. And then another couple of years before I did away with the actual envelopes. (Which, I should probably get back to with all the price changes/increases going on.)

[Stacie]

We did it for about six months. We have no debt, including no mortgage, and we have our cushion in the bank. But really wanted a good grasp of where our monthly income was going. It did wonders for us to see how we were spending, where it was going, and how to get more siphoned into savings. I still do the envelope system, but am now able to do it in my head. I can generally calculate how much we've spent for the month for each category and how much we've saved within about $20. We are now back to using our credit card for general expenses and paying off the balance each month since we have a nice rebate plan on our card. Extraordinary expenses we evaluate them individually to determine if they should be place on the card, or if we should pay in cash/check.

 

I'm glad I don't have to carry around as much cash as I did, but I'm so glad we did the system. It really helped us see the bigger picture. If I didn't have a good eye for the budget (and it's so much easier without having to juggle debt) we'd still be using the envelopes.

[rafiki]

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[Cedarmom]

It was too overwhelming for us to try and figure out how to do it all in envelopes. So, we started out with a few.

 

Entertainment and Dining

Grocery

Drug store and vitamins

Gas

we each get an envelope of personal spending money ( just a little , but enough if my friends ask out for an occasional latte I can go)

 

We plan to add envelopes. Next I think we will add clothing. Cars seems a good idea too.

 

We save the leftovers, because sometimes things will cost more than we have in our budget amount. Like last week when we were sick and we spent extra $ on medicine. We were consistently having more money in our grcoery amount, so we dropped that amount down.

[Seeker]

I began using a cash envelop system about 20 years ago, before Dave Ramsey wrote his first book, and we were completely debt-free for a few years as well. As he says, his cash method is nothing new. We are not debt-free now as we have a house and have had some really bad fortune in last few years. We are pretty much using every penny in our budget now, since my husband is making about 70% of what he was.

 

I withdraw the entire amount of our paycheck, which is direct deposited, except for our tithing amount, for which I write a check as long as it is under $250 or two checks if more, as advised by a IRS tax attorney.

 

Other than tithing by check, I do everything in cash and money orders purchased from U.S. Post Offices. I pay what bills I can in person and the rest by mail. I don't like automatic bill paying. Unlike Dave Ramsey, I do believe in keeping a credit card and we use that when making purchases that are ordered. Regardless of what he says about this, a credit card is better about taking off a debt amount when you have not received the goods, which happened to us once when a furniture retailer when bankrupt. If we had used cash or a debit card at that time, it would have been months to get our money back, if we would have gotten it at all.

 

I don't like one account to touch another and I do not use our debit card, but my husband does for expenses associated with his work because we are reimbursed through that account. It makes things a bit more complicated in some ways, easier in others.

 

We have a set amount we contribute to an envelop for health, but if something is known about ahead of time, we make adjustments to the budget to save up for them if possible and, if not, there is the emergency fund. I also part ways with Dave on the $1K emergency fund and try to have enough to buy another used car since ours nearly 150,000 miles on it or at least three months of expenses, particularly with how things are in the economy.

 

As for the car expenses, we have an envelop for that too. We had to get new tires last winter and the money was sitting there in the envelop. We still paid insurance and tags without dipping into the emergency fund at all.

 

When all the money is all pooled together in an account, people tend to forget things that are coming up, like car insurance or don't plan for the unexpected, like newer but cheap tires coming apart. Such things seem so far into the future or unforeseen and there is plenty of time to make it up, so the rationalization goes as they buy that really cool wide screen TV, but once the money is spent, it is spent and the car insurance is due before you know it.

 

The envelop method demands accountability. I put receipts in the envelop so I know where the last paycheck went before filling up with the next one. We have gotten cash discounts on some purchases also.

 

My thoughts are if you have enough money to make sizable amount of interest so that it is a factor in your decision about whether or not to start an envelop system, you should be debt-free and investing that money in a better way.

 

Since tithing is taken care of by check, these are the envelops we have currently:

 

Groceries

Mortgage

Utilities

Auto: maintenance, repairs, tags, and insurance

Gas

Personal: clothing, haircuts, gifts

Household: maintenance and repairs

Outings: occasional eating out but mostly trips to visit and help ailing family members or go to funerals

Piano: lessons, tunings, books

Homeschool

Health Care

Pet Care: food, health care, litter, accessories

Pay Down: any debts (when needed)

 

We many be adding one for Orthodontics in the near future and possibly Horseback Lessons if I can squeeze it out of the Homechooling Budget. We usually have just a bit to add to our emergency fund as we are paying down a cc debt right now.

Edited October 19, 2009 by Seeker

[tdeveson]

Ack, posted in wrong thread. Disregard.

Edited October 19, 2009 by tdeveson

[CLHCO]

I've heard Dave Ramsey on his show and looked through his web site but I never got around to reading his book. Even so, I have developed a similar system that we've used over a year now and it's working very well. I tried a few years ago and it didn't stick, but this time it did and we'll stay with it.

 

You may have to find a different option if you can't change your bank. Having a local bank makes this much easier.

 

First, I don't pay EVERYTHING in cash. I admit I don't like having to pay cash for gas. I like the convenience of my debt card so I stuck with that. I simply budget the gas expense into what I keep in my account each month.

 

I set up a spreadsheet to go with my cash system. At the top is monthly income, followed by every single standard expense category with the approximate date it's due. Each pay day I list what the check will be, followed by all bills due to be paid, paying each online immediately, or writing out checks where absolutely necessary, even if the check isn't due yet but will be that pay period.

 

I leave in what I estimate for gas and pull the rest, outside of a couple hundred I leave in for "cushion". After I pull the rest I put it into my accordion envelope in appropriate categories, similar to what others listed. I don't have to then touch the account for the next few weeks because I know I'm not going to overdraw. Much less stress.

 

Oh, I keep my cash secure at home, only taking what I need when I go out to avoid theft or loss. It takes some time to develop the discipline to remember to grab cash though.

[kmacnchs]

I was told about the envelope system but have never read his books.

 

Last month we paid our bills and only had enough money for 1/2 of a month's worth of groceries (slow month of work). So, we found change and ate out of the freezer for the rest of the month. I balanced our checkbook at the end of the month and found out that for the first time in 4 years of marriage we actually stayed on budget! So, that gave me an idea. If it's not in there, we can't spend it (that is the only way we did not overspend)...if my dh sees money in the account, he will spend it. So, this month, after I paid bills, I took all of the money out and we are only spending cash...the cash stays home until we go out to buy something specific (groceries, gas, etc). If it was in dh's car, it would be gone too!

 

The month is not over but I am curious to see if it works...The only problem I have seen thus far is that my ATM will only let me get $400 out at a time and I want it all out asap...I guess I could write myself a check and cash it at the bank but that's an extra trip out of the house (not the easiest thing to do w/3 little ones). Another thing is that b/c we bought everything by debit, we didn't really pay attn. to receipts but now we will have to...what do you think? Is that what Ramsey talks about or is my idea skewed? I am open to suggestions! We have a mortgage that I would love to pay off early but I don't see that happening. Really what I want to do is stick to a budget and be able to have grocery money at the end of the month...

[KidsHappen]

I am not really sure I understand the why of this system. I pay all bills by check and then use debit card for everything else. I use the Money program which has reports that tell you how much you spend in each category every month. So I can look back and tell how much I have spent and see if I am on target. Each category balances out over the year. For instance, one month I may spend more on food but then the next month I need to buy less. Most expenses are pretty consistant though. For instance, the pet eat about the same amount of food each month. Utilities are about the same every month and gas pretty darn close. The only categories that have a spread over months are food and clothing. Getting cash out of the bank and keeping it in envelopes seems like a hassle and I know for a fact that we spend more money when it is in cash form. Mostly because my kids can ask for money for X and I can give them cash, otherwise I have to leave the house and it is much harder to convince me to do that.

[5wolfcubs]

I appreciate seeing how it is working for each of you...gives me a lot to think about.

 

But really wanted a good grasp of where our monthly income was going. It did wonders for us to see how we were spending, where it was going, and how to get more siphoned into savings.

 

I think this is the angle dh is coming from. That and when we go to the grocery store together (a new phenomenon this year) we spend way less then when I just take the kids. We don't get things like chocolate covered raisins or rice quakes when he is along! Plus I think he wants the kids to see money transactions & budgeting...it just hasn't happened in all these years. They do hear us occasionally talk about the cc bill (paid off every month) and not doing things because they're expensive, especially for a family of 7!

 

Kidshappen...I think the idea is having already allocated the cash doesn't allow you to overspend. When I have cash -- every once in awhile I'll ask dh for some for something specific -- I fritter away the rest on treats from vending machines for the kids and the like. So you'd have a "discretionary fund" or some such to give the kids money out of...and when it was gone, it was gone, but your current system sounds like it is working!

[Night Elf]

We used to do envelopes and they worked well to keep me from overspending. We've altered the plan and now keep money logs for each category. When I spend in a category, I record it and keep a running total. If I run out of money, I stop buying in that category. The only exception is groceries and medical. We try to stay in the budget for those, but in rare circumstances, they need additional funds. We reset the logs with each payday, and I keep old logs to average spending.

 

groceries

household

pet expenses

gasoline

clothing & shoes

medical

eating-out as a whole family

 

We use cash for allowances and all 5 of us have an allowance. Mine is the largest because I use it mostly for me and the kids when we're out of the house. I do not use my debit account for anything other than our budget.

 

Seeing our spending before doing the envelopes and logs was a real eye-opener. We were wondering why we were running out of money a few days before the next paycheck. Using the budget, we now put extra on our mortgage and into our money market account.

 

Editing to add: I didn't answer about bills. We pay online for some and send checks for others. They are not budgeted monthly because they are the same every month. We have the budget plan with gas & electricity which keeps our monthly bills consistent all year round. We do not pay any fees for our checking account, and it doesn't earn interest. Having the money in the account or in an envelope is the same. We take a certain amount from every paycheck to put in our money market, which does earn interest, and use that for few & far expenses, such as car maintenance and big homeschool purchases.

Edited October 19, 2009 by Night Elf

[Night Elf]

Getting cash out of the bank and keeping it in envelopes seems like a hassle and I know for a fact that we spend more money when it is in cash form. Mostly because my kids can ask for money for X and I can give them cash, otherwise I have to leave the house and it is much harder to convince me to do that.

 

Well, the cash system doesn't allow for multiple trips to the bank, except for the period of time you have budgeted. My DH gets paid twice a month so we have a budget for those 2 paychecks. We have only so much we can spend from a paycheck. We no longer rob Peter to pay Paul, so to speak.

 

Let's say you have $200 for groceries for two weeks. You only get that amount once and use it to buy groceries only. If you give the money to the kids, that is less money you have for groceries.

 

My experience is opposite of yours. I spent more money when I left it in our checking account before we created a budget. I knew I had money in my account. My brain just doesn't account for all the purchases I make. I only seem to remember the purchases in the last 24 hrs., if that. So in my mind, I always have money in my account! So I was genuinely puzzled when we kept getting down to $0 before we got the next paycheck. :tongue_smilie:

[2squared]

We bank with USAA as well. You can take out $600/day per account per debit card.

 

We have two joint checking accounts with separate debit cards (2 accounts & 4 debit cards). If I need a lot of cash, I can pull $2400/day -$600/limit per card x 2 debit cards x 2 accounts. Does that make sense?

 

When we were doing the cash envelop system, I pulled the cash out of the bank during the last days of the previous month so it was in the envelopes on the morning of the 1st. Dh would get cranky if his blow money wasn't replenished ASAP or if an envelop was empty and he needed it.

[5wolfcubs]

We bank with USAA as well. You can take out $600/day per account per debit card.

Oooh, really?! We only have one card and one checking account...they stopped sending me a card years ago after I quit using it for over a year (I forgot the pin).

 

I've been thinking about this cash idea all day. I managed to spend $25 for a Christmas wreath (Boy Scout fund raiser) and found out it will cost $100 for karate belt testing for my 4 children in a week and a half...

 

I think dh & I need to have our discussion! :)